The Work Opportunity Tax Credit

Discover how the Work Opportunity Tax Credit (WOTC) provided employers with tax savings for hiring qualified candidates from designated target groups.

Reviewed by Paylocity's Compliance & Government Relations Team

Tax Resource

January 21, 2026

On December 31, 2025, the Work Opportunity Tax Credit program expired and is no longer available.

Refer to our tax alerts page for any WOTC legislative updates in the future.

What was WOTC?

The Work Opportunity Tax Credit (WOTC) was a federal tax incentive that encouraged employers to hire workers from certain “target groups” that have historically struggled to find employment, such as veterans, long-term unemployed individuals, and those receiving public assistance.

Created by the 1996 Small Business Job Protection Act, WOTCs helped reduce an employer’s hiring costs by covering a portion of the wages paid to eligible employees. The program's intent wasn’t to stimulate new job growth but to incentivize hiring qualified, historically overlooked candidates.

To claim this federal tax credit, the employee(s) had to be certified by a designated state workforce agency (SWA) as part of a targeted group and work 400 or more hours for their employer in their first year.

If approved, for-profit employers could apply this work opportunity tax credit to their income tax liabilities. Certain tax-exempt or non-profit employers, on the other hand, could use the credit against payroll taxes on the wages paid to eligible employees.

Key takeaways

The Work Opportunity Tax Credit (WOTC) helped reduce hiring costs by offering tax credits for hiring individuals from historically underserved groups.
Target groups of potentially WOTC-eligible candidates included veterans, long-term unemployment or supplemental security income recipients, youth summer workers, and former felons.
To claim the credit, employers had to screen eligible hires, submit their information to an SWA for eligibility approval, track work hours and paid wages to meet credit thresholds, and submit IRS Form 5884 with their standard tax returns.

WOTC program limitations

Employers could typically claim a workplace tax credit equal to 40% of a qualified employee’s wages, up to $6,000 — resulting in a maximum credit of $2,400 per employee. However, amendments to the program later expanded that benefit for certain members of the qualified veteran target group, allowing employers to claim up to $9,600 (40% of up to $24,000 in wages).

Furthermore, if an employee only worked between 120 and 399 hours for the employer, the credit was reduced to 25% of their wages.

Finally, only newly hired employees could qualify for the WOTC, meaning employers couldn't claim the workplace tax credit for rehired workers. Yet, there was no limit to the number of eligible employees an employer could hire, and therefore no cap on work opportunity tax credits employers could claim.

Work Opportunity Tax Credit program requirements

Work opportunity credit requirements were designed to support individuals from specific target groups. Therefore, when an employee was hired, employers had to submit the correct work and tax credit certification to verify compliance.

What employees qualified for WOTC?

There were ten WOTC target groups, each with distinct characteristics and requirements.

WOTC target group	Group details
IV-A Recipients	Members of families receiving Temporary Assistance for Needy Families (TANF) under Title IV-A of the Social Security Act. To qualify, the family must have received assistance for at least nine months during an 18-month period ending on the hire date.
Veterans	Former members of the U.S. military who met specific conditions, such as being part of a SNAP-recipient family, being unemployed for at least 4 weeks, or having a service-connected disability. Additional qualifications applied based on recent discharge status and extended unemployment history.
Ex-Felons	Candidates who were convicted of a felony or released from prison for a felony within one year before their hire date.
Designated Community Residents (DCRs)	Individuals aged 18 to 39 who lived in federally designated Empowerment Zones (EZs) or Rural Renewal Counties (RRCs) at the time of hire. The individual had to maintain their principal residence in that area while employed.
Vocational Rehabilitation Referrals	Candidates with a physical or mental disability referred by a state-approved vocational rehabilitation program, the Ticket to Work program, or the Department of Veterans Affairs. The referral could occur during or after participation in the rehabilitation services.
Summer Youth Employees	16 or 17-year-old workers who lived in an EZ and were hired for seasonal work between May 1 and September 15. These employees couldn't have worked for the employer before May 1 of the hiring year.
Supplemental Nutrition Assistance Program (SNAP) Recipients	Individuals aged 18 to 39 whose families received SNAP benefits for the last six months or at least three of the previous five months before hiring.
Supplemental Security Income (SSI) Recipients	Individuals who received SSI benefits for any month within a 60-day period ending on the hire date.
Long-Term Family Assistance Recipients	Candidates who were part of a family that received TANF assistance for at least 18 consecutive months (or a total of 18 months after August 5, 1997) or who became ineligible due to time limits within the last two years.
Long-Term Unemployment Recipients (LTUR)	Individuals who were unemployed for 27 consecutive weeks or more before the hiring and received unemployment compensation for all or part of that period.

What was a Work Opportunity Tax Credit form?

To successfully claim a WOTC, employers had to complete and submit various forms to their designated SWA when hiring a WOTC-eligible candidate and filing their tax returns.

WOTC form	WOTC phase	WOTC form details
IRS Form 8850	WOTC screening	A work opportunity tax credit pre-screening notice that employers and the candidate had to complete on or before the day a job offer was made and submit to the SWA within 28 days of the new hire’s start date. The first page, sometimes called the WOTC questionnaire or WOTC survey, collected background information from the candidate to help determine which target group they belonged to. The second page collected the employer’s background information and four key dates: When the candidate gave information that could classify them as a target group member, when the candidate was offered the job, when the candidate was hired, and when the candidate started the job.
ETA Form 9061		The Individual Characteristics Form collected additional candidate details (e.g., age, disability, veteran status, etc.) to help further determine which (if any) target group they belonged to.
ETA Form 9062		The Conditional Certification Form was an alternative form candidates could provide instead of ETA Form 9061 if the designated SWA pre-certified them as WOTC-eligible.
ETA Form 9175		Candidates belonging to the LTUR target group had to complete this self-attestation form to further verify their group eligibility and provide the finished version to their new employer.
IRS Form 5884*	WOTC claims	The Work Opportunity Credit form, which employers use to calculate how much WOTC they could claim based on the qualified wages paid to WOTC-eligible employees.
IRS Form 3800	WOTC claims	The General Business Credit form consolidated various business-related tax credits, including the WOTC amount from Form 5884, into a single employer tax credit organizations claim on their tax returns.

*Tax-exempt, 501(c) organizations should've used Form 5884-C instead.

How to apply for and claim Work Opportunity Tax Credits

With a firm understanding of the credit’s requirements and necessary forms, the WOTC assessment and claims processes was fairly straightforward.

Pre-screening: After familiarizing themselves with the requisite WOTC forms, employers could consult their designated SWA or organizations like the American Job Centers to find potential job applicants who may have been members of a WOTC target group.
- While not required, employers could also submit an ETA Form 9198 to formally identify and declare their authorized SWA representative
Tax credit screening: During the job offer process, employers and new hires prepared WOTC Form 8850 and an ETA 9061 form, unless the new hire was pre-certified as WOTC-eligible by the designated SWA. In that case, the candidate had to provide an ETA 9062 form instead of the 9061 work opportunity tax credit questionnaire. If the new hire was a member of the LTUR target group, they also had to provide a completed ETA 9175 form.
- Employers had to submit the completed paperwork to their designated SWA within 28 days of the new hire’s start date.
Performance tracking: If the designated SWA approved the submitted tax credit assessment, employers would carefully record and track the WOTC-eligible employee’s work hours and wages to meet WOTC requirements.
Claim credit: When filing their tax returns, employers had to use a 5884 form (or 5884-C if they were tax-exempt) to calculate how much of a WOTC they could claim. The calculated total was then used to complete Form 3800, and both forms were submitted with the employer’s returns.
Recordkeeping: Employers could retain and store copies of all WOTC paperwork and payroll data for compliance verification and potential future audits.

Simplify tax credit savings with Paylocity

Claiming a tax credit can deliver significant savings for employers — but the paperwork can be a hassle.

Paylocity is a trusted HR and payroll provider that can streamline workflows and manage your compliance burden with features like:

A robust compliance dashboard for managing state and federal legal and tax requirements.
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A dependable library for easily uploading, storing, and retrieving all important employee documents.

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